From the 1st March 2016 the options for retirement have changed. Legislation comes into play which aims to standardise the various types of retirement funds which are available to us. Namely, provident, funds, pension funds and retirement annuities. The changes will make things a lot easier to understand and apply in the future as the current variations are complex.
The main changes point to provident funds which were not restricted, as the full lump sum could be taken at retirement. Retirement annuities were always treated like pension funds in that at retirement you could only take a third in cash and the remaining two thirds had to be invested in a pension. Provident funds effectively become pension funds from the 1st March. The new regulations bring all options into line levelling the playing fields at retirement.
The advantages
Currently there are varying deductions applied to provident, pension and retirement annuity funds.
The good news is that the overall deductibility of contributions to retirement funding increases to 27,5% to a maximum amount of R350 000 per annum. Any amounts over this capping can be rolled over into the next tax year and deducted.
Deductions are only allowed in the hands of the employee so you will need to clarify things with your employer to ensure that the correct tax is applied. Any contributions made by your employer will need to be neutralised by a fringe benefit tax on your payslip.
These changes are an ideal opportunity for you to sit down with your financial planner and revisit your retirement planning. There are benefits to be found in optimising your contributions towards your future funding taking full advantage of the new level of tax deductibility.